Originally Posted by
upside_umop
Inflation is set to stumble down to low single digits...ie 1-2%. Interest rates are forward thinking, based off expected inflation using a 'real' interest rate as a base and the difference between nominal and real being the inflation component. Whats better? Earning 8% last year with 5% inflation, or 5% this year with 2% inflation? When you think about it...actually better this year! Lets have a look:
8% less tax (19.5%) = ~ 6.44% - 5% (inflation) = 1.44% real rate.
now lets see 5% rates and 2% inflation:
5% less tax (19.5%) = ~ 4.03% - 2% (inflation) = 2% real rate.
How can this happen you might ask? Well, the real rates are staying the same...but the government tax take ends up being less - we savers win.
The situation would be even more beneficial on a 39% tax rate, compared to previously. As you see, my competitive advantage is my tax rate...
This is of course not true for people who rely on interest payments for income because now they might only be able to buy half the goods with their payments than they did before.